1996 (12) TMI 384 - SC - Indian Laws

Summary

Issues Involved:
1. Exemption of State Property from Union Taxation.
2. Interpretation of "Union Taxation" in Article 289(1).
3. Legislative Competence and Applicability of Article 246(4).
4. Status of Union Territories vis-à-vis States.
5. Municipal Taxes and Their Classification.

Summary:

1. Exemption of State Property from Union Taxation:
The central issue was whether properties owned by various States within the National Capital Territory of Delhi are exempt from property taxes under Article 289(1). The Supreme Court reaffirmed the decision in the Sea Customs case, which held that State properties within Union Territories are exempt from Union Taxation. This exemption applies to all taxes levied by the Union, including those on properties situated in Union Territories.

2. Interpretation of "Union Taxation" in Article 289(1):
The term "Union Taxation" in Article 289(1) was interpreted to mean "all taxes leviable by the Union." This broad interpretation includes taxes levied under Article 246(4), which allows Parliament to legislate for Union Territories, including matters in the State List. The Court rejected the argument that "Union Taxation" should be limited to taxes levied under Article 246(1) on matters in the Union List.

3. Legislative Competence and Applicability of Article 246(4):
Article 246(4) empowers Parliament to legislate for Union Territories on matters in the State List. The Court held that this power is not an exceptional situation but part of the ordinary constitutional scheme. Therefore, taxes levied under this provision are included in "Union Taxation" under Article 289(1).

4. Status of Union Territories vis-à-vis States:
The Court analyzed the constitutional status of Union Territories and concluded that they are distinct from States and are under the supervision of the Union Government. Despite having separate identities within the constitutional framework, Union Territories cannot avail the privileges available to States. Consequently, properties of States within Union Territories are exempt from Union Taxation.

5. Municipal Taxes and Their Classification:
The Court held that property taxes levied by municipalities within Union Territories fall within the ambit of "Union Taxation" and are thus exempt under Article 289(1). Despite the enhanced status of municipalities under Part IXA of the Constitution, they do not possess independent taxing power and remain dependent on their parent legislatures.

Conclusion:
The Supreme Court dismissed the civil appeals and special leave petitions, holding that properties owned by States within Union Territories are exempt from property taxes under Article 289(1). The term "Union Taxation" encompasses all taxes levied by the Union, including those under Article 246(4). Municipal taxes within Union Territories are also covered by this exemption.